Follow the money

As global markets go haywire, US stocks are suddenly looking pretty appealing in comparison (disclaimer: they’re still looking pretty bad). 

Driving the news: Freaked-out investors are pouring money into the US while pulling out of international stocks at a rate not seen since a 22-week run of outflows in 2019, per the WSJ

Why it’s happening: Partly because the European Central Bank might raise interest rates by 0.75 of a percentage point today to fight inflation, increasing recession risks for the EU.

  • The US is considered a relatively safe place to park money until all this tides over,  because of strength in the job market and (seemingly) endless consumer demand. 

Why it matters: The state of the world economy has dealt investors a massive blow. Things may be looking (slightly) up for US stocks, but markets will likely continue to hurt this year. 

Money managers are also making moves in the US, says Bank of America. A third are underweight (have limited investment in) European stocks and 10% were overweight US. 

  • That’s a complete 180 from January when 35% of fund managers were overweight (had an outsized investment in) EU equities and 5% were overweight US stocks.
  • For a while, emerging markets, like Europe and China represented high-growth areas of global stock markets, since developed markets had less opportunity for growth.  

Yes, but: All stocks are going to face more pressure as macroeconomic and profit risks continue to rise, and the problems in Europe will eventually spill over to North America. 

  • Plus, Europe’s largest asset manager says it’s time to cut equity exposure across the board and look to government bonds instead. 

Bottom line: The US economy may be strong, but it’s a big bet on a country in which the main stock index has fallen 18% this year and corporate earnings are starting to trend down